I asked whether the well did show hydrocarbon flows – and if so how much? After all they have been up and down this well with equipment many times and if there were hydrocarbons they would detect gas in those trips (so-called “trip gas”). Eventually they said through their lawyers that they had found hydrocarbons in this well. (Note that their position appears to have changed since early this week – as this weeks drilling report denies the finding of hydrocarbons.)

The three letters that they sent me are reproduced here (1), (2) and (3).

Zion are currently issuing shares under a rights issue. Selectively informing me of a hydrocarbon find is of course an offense. Not informing the market of such a find during a rights issue is similarly an offence. Likewise would be failing to inform the market that the well was substantially dry. Whatever, I agreed with them the regulators should be informed. They had been keen to turn me in. So I sent them this reply:

Dear David [Aboudi – Zion’s lawyer in Israel]

It is clear that you are intending to report me to the regulatory authorities for my blog post on Zion oil and gas.

I think we should proceed quickly. I have copied this letter to Stephen J. Korotash---Associate Regional Director of the SEC office in Fort Worth in charge of enforcement. This is the appropriate regional office with jurisdiction over Zion. I have previously copied him all three of your emails to me and my blog post.

Could you suggest a time that is appropriate for a conference call?

I have not invited Tim Johnson who is the US Attorney for South Texas which has venue over Houston based issuers, however if you wish to include him his email is [withheld]@usdoj.gov

I look forward to our discussion.

Thanks in advance.

John Hempton

I have heard nothing more from them.

They drill for oil in the Promised Land. I sit at the arse-end of the earth. But good religious folk like them should know it is rude not to reply.

I am waiting for the next warm Jericho lettuce flogging.

J

PS. I send a draft of this post to company for comment. They have since made much clearer statements as to the hydrocarbons in this well. They are testing zones of porousity so they still have hope – but they note that:

As yet, no hydrocarbons have been ‘Produced to Surface’…

[However] with regard to our log analysis, an independent log analyst noted that the Ma’anit-Rehoboth #2 well does have a specified amount of potential “net pay”…

The analyst was careful to comment that the results of his analysis … should not be considered ‘quantitative’ due to the effects of borehole washouts on the input logging measurements used for his analysis.

He noted that the existence of any hydrocarbon-bearing, open-hole fracture porosity in the formations inferred from the effects of borehole washout on the conventional wireline log data analyzed was tenuous at best, as such reservoir properties are impossible to identify or quantify directly from conventional log data alone.

The analyst recommended testing the seven zones…

You will appreciate that, until such time as we recover hydrocarbons at the surface (or not), we are not able to give any estimates of what (if anything) we believe we may recover.

Given no hydrocarbons have been produced to the surface and the indications are tenuous at best I will now amend my original post to the well being probably dry. Their legal threats demanding I withdraw the assertion the well was dry seem hollow.

Our client has clearly indicated in its public filings relating to the Ma’anit-Rehoboth #2 well that the well logs indicate the presence of hydrocarbons in identified 'zones of interest'.

There is an inconsistency between Zion’s latest statement to the market and their lawyers statements to me. That was a sustained exchange so the disclosure to me was not an accident. However Zion’s comments during the rights period now appear to be appropriate – I think in no small measure due to this blog.

PPS. Zion are Dallas (not Houston) based. The right USDOJ official would be James Jacks. That is good – he is probably more aggressive than Tim.

There are a lot of scams out there. A few of us can flush some of them out, but we are like the little boy with our finger in the dyke. There is so much to do, and the regulators aren't exactly aggressive where they should be.

Good post. Though I am an evangelical Christian, these sorts of stunts using Christianity to further economic goals embarrasses me. I liked your post, but at the end, I am sadder than when I started. Disappointed by likely brothers. So it goes.

Great, I'm glad they called you out. People need to be held accountable for their statements and yours obviously were misleading and highly prejudicial.

Appears to be an honest venture bent on accomplish a formidable task. I don't think I would characterize a well with 7 zones of potential "net pay" as a "dry hole". Dry Holes are plugged and abandoned. Wells with potential pay are developed and tested. Sounds like they may have something here. Thanks for the tip. Looks like a great spec play.

It's a clever idea to set up shop in Texas. There is a large population of Christians and a massive population of people touched by oil wealth. They use the very Bible to raise capital. What little geology they do discuss, they mention the permian geological layer that they're trying to reach, which is akin in name only to the richest part of Texas (for oil) the permian basin.

Faith is an underpinning for Christianity. Asking someone to have blind faith in an investment is just sad. If this company had a track record then I might give them the benefit of the doubt but without any success to their name, without ever finding one drop of oil anywhere in their entire history as a company, without a penny of revenue, with shares outstanding growing faster than our national debt, with an equity offering coinciding with fuzzy news about a recent well... I'd have to agree, sorry, this is a scam.

Did you Bronte folks short the stock?Reasons I own Zion Oil and Gas.-Israel building a pipline to Ma'anit #2 to be completed in late 09.-Entered Ma'anit #1 well again with Ma'anit #2 well. Why not save 11 million and drill another hole? Because they know what they have, commercial oil/gas.-4,000 continuous feet of hydrocarbon shows.-6 to 10ft well flair at Ma'anit #1 for an extended period to time.-7 zones of interest.-Added thousands of leasing acres to drilling area.-Independent logging results show possible "net pay" at all 7 zones.-Goldman Sachs, Barclays etc.... own shares??? Why would they mess with a stock like this? They always have the insider information.-Stock price goes from 11 to 7. Somebody wants all the rights offering.-Short interest 923k shares in the last few weeks.(Kill price to get less to exercise so big firms can oversubscribe).-Notice the current support level. Last 2 times we hit this price we rallied over 3 pts in a few days.-SHORT SQUEEZE COMING. Highest short % I believe in ZN history.All this info can be verified by doing Google search. I am willing to take an educated guess with the above info rather than Bronte and their it's a dry hole, because it is scenario.

Y'know, it'd be nice if they told us how thick each of the zones of interest were, and whether any of the zones they hit were high or low to prognosis. I mean, they have the predrill 3D mapping (see the exploration maps), so they could tell us these things if they wanted.

Also, what kind of enthusiasm the gas sniffers were showing over what depths would also be nice.

We know they are measuring ditch gas - look at p21 of the COO's report to the 2009 shareholders meeting.

Operational update 18 has the bad news ...

"One of the major issues for this well relates to the presence and type of ‘reservoir rock’. A reservoir rock is a rock that can both store and transmit oil and/or gas. It should have porosity, that is, there should be spaces (pores) in the rock that are not occupied by solids.

The porosity values that we have seen are towards the low end of the scale, as was expected at these depths, but fractures in the rock can more than make up for the low porosity readings."

Snark on. Reservoir rock without porosity is what we in the trade call 'seal'. Scark off.

Their Permian targets are Arqov/Sa'ad - Khuff analogs. OK, fair enough. I'll say now, there is some geology hiding under the cloak of theology, and it's a real play.

http://www.reuters.com/article/pressRelease/idUS43051+29-Nov-2007+BW20071129 has some geo detail hiding in there.

That said, I'm not a Khuff expert, but what I will say is I'd personally be a lot happier relying on fractures for permiability than for porosity.

$20 says the primary targets are subcommercial even if they do flow.

I'll make some comments on the Triassic secondary targets in a minute.

Finally, a word for our friend Billy. If you are going to bet on the Daily Double, you should know how many legs a horse is supposed to have, mkay ?

Someone probably also wants to have a look at the 18 Feb 2002 Oil and Gas Journal.

Hmm, Triassic coral-algal buildups. A reef play ... interesting. And also the one that failed with Ma’anit-Rehoboth #1

Look, I'm guessing #2 was drilled up-structure of #1. At minimum though, this is going to limit the discovery size, as we know that once you get downstructure to where #1 was, its water-wet.

Basically, my money would be on the primary Permian target being subcommercial. I'm not prepared to say anything about the secondaries, until I know how far updip #2 is from #1 in the previously-tested Triassics. And Zion appear to be trying quite hard not to tell me this.

Ian, when I read report 18 about the low end of the porosity, I thought the same thing. Update 19 or 20 however went in to fractures that they have encountered. They also said they had hit a fault zone which more than makes up for the lack of holes in the rocks. Fault zones in drilling are a very good sign for oil, but unfortuantely stopped them from drilling any lower currently. Glen Perry also said in 07 that the oil they saw in Ma'anit #1 was a very light oil (kerosene) which does not need the same porosity to travel through. I enjoyed your post.

Porosity determines how much oil or gas can be in your reservoir. It's permiability that determines whether you can get it out.

I just dont agree with "Fault zones in drilling are a very good sign for oil". Faults are a game-changer. The shear action of two fault blocks rubbing against each other can create some nice rubble that can host oil in otherwise tight rocks, yes ... but they can also pop your nice reservoir up and over the seal so the oil leaks out, and do several other bad things. Bluntly, known and planned for fault, good. Unknown fault, bad.

And what they hit was an unknown fault.

Finally, there's no real difference between gas, light oil and heavy oil in migration - given enough time, you need only a handful of millidarcies for migration. The main target is Permian remember - even if we assume charge was post-Permian, we've still got rather a lot of millions of years to play with (*).

So yeah, now we wait for the DSTs, ordered on some very dodgy data from washed-out sections. I'll say it again. I think M-R#2 was a real play, with some real geology hiding under the cloak of theology to get funding.

But I'd trust them a lot more if they told me what I needed to know.

Ian

(*) There are things in this world I do not understand. Young Earth Creationists in Texas and Oklahoma are one of these. I mean, FFS, the entire fricken oil industry is based around the conventional Darwinian story - the Permian Basin really is Permian, for example.

Ian - You are hilarious! Maybe God put that tantalizing Darwinian evidence right under their noses to test their young earth creationist faith?

Maybe CEO Brown knows they've got a gusher, but similar to God testing the faith of the YE Creationists, John Brown is testing our faith in Zion!?!

For the first time in his life, he has the power to monetarily reward the most faithful of his followers. He is floating just enough news to attract that special class of investor with abundant faith. He will burn the doubters and disbelievers.

Or, maybe not. Mayhe he just wants to raise $18 million so he can keep a paycheck coming for the next few years.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.